KKR: Barbarians at the gate? Not any more

It is the private equity raider that inspired Barbarians at the Gate, the
chronicle of the wild 1988 takeover of America's RJR Nabisco. Nearly a
quarter of a century on, Kohlberg Kravis Roberts has an altogether less
macho image.

KKR, founded by Henry Kravis (pictured) and George Roberts, has completed more than 200 private equity investments for a total of $455bn of enterprise value.

Don't be fooled, though. The company may look cuddlier. But KKR has grown to be more powerful than ever, as it spreads its influence around the globe.

Today its game is not just buying and selling companies but trading shares and securities, providing debt and investment banking services - as well as owning energy assets and real estate,

The company has spread from the US to Europe and now across Asia, with a new $3bn (£1.9bn) fund launched just last week. KKR owns pet shops, 60,000 Chinese cows, part of Alliance Boots, an Indian coffee shop business and Toys R Us - plus the rights to some of Adele's music, via its ownership of BMG.

KKR has completed more than 200 private equity investments for a total of $455bn of enterprise value, and now finances not only its own acquisitions but takes advantage of gaps left by banks in providing credit for rivals' deals, such as RBS Worldpay and Kroll.

"We were never barbarians," says Dominic Murphy, KKR's European dealmaker who orchestrated the £11.1bn acquisition of Alliance Boots in 2007, Europe's largest ever leveraged buy-out.

"KKR is a recognised brand and a firm with some great capabilities. Entrepreneurs want to meet with us. It isn't barbarians they meet. We are hard working, thoughtful people. And with no star culture," he says.

Luckily for Murphy, right, his own star has begun to climb again, after being held in check for five years as commentators speculated whether KKR would manage an exit from Boots.

Last week's $6.7bn deal to sell 45pc of the entity to US rival Walgreens should give Murphy some breathing space. He admits the Boots deal was risky because it was done at the top of the market but quickly adds that profits have shot up 88pc since the buy-out - a result of investment, not raiding and financial engineering.

"We clearly didn't foresee the recession and the financial crisis right after the deal.

"When you sign, it's game on and the real work begins. That's the moment you have to take accountability to your partners, to outsiders, to yourself," says Murphy.

Five years on, the Walgreens sale means that KKR's initial £1.22bn equity cheque has more than doubled in value. KKR received £1.1bn in cash for the 45pc stake and $140m in shares in Walgreens, which makes an overall return of £1.3bn; taking into account the valuation of the 55pc remaining stake, this would amount to a 2.7 times return on its investment. In dollar terms, this comes to 2.2 times, given the appreciation of the dollar since 2007.

"Monetising 45pc of our stake is a pleasing outcome," he says. "It doesn't mean slowing down because we're not done. The pressure is still on us and we control 55pc, so we're responsible.

"It is a great strategic fit and with Stefano we will be big shareholders in Walgreens," says Murphy, who will join Stefano Pessina, the entrepreneur behind Alliance, to sit on the board of Walgreens.

Murphy calls it "smiling with quiet humility" with the most satisfying part still to come when the strategic plan has been fully completed. Then it will be clearer whether his team have "done right by the company" and whether KKR's reputation has done well from the association.

"We hold assets a long time so it takes time to evaluate which investments are successful," he says.

The other problem is that, regardless of all the Harvard MBAs, making a return still requires Godgiven nous. Or, as Murphy puts it: "An uncommon amount of common sense".